How to Earn Passive Income in Crypto
This is your end goal. If not today, tomorrow.
To live a stress-free life, you need three ingredients:
Bitcoin
Size
Patience
The rest will come naturally. No matter where you are in your crypto journey, this guide will prove useful. Here’s how to do it. TLDR at the end.
Let’s start with a simple exercise first. How much size do you need to retire today?
Take your monthly expenses and multiply that by 300. For the sake of this exercise, let us assume you spend about $5,000 a month on rent, utilities, food, going out, etc.
That means you need $1,500,000 to retire. That’s 25 years worth of expenses.
Why this number?
Because with that money, you’d need a 4% withdrawal rate per year to live at your current standards. Likely forever if you do it smart, not just for 25 years. 4% out of $1,500,000 is $60,000 a year or $5,000 a month.
Now that we know how much you need, let’s see how you can get that size.
If you’re reading this, you’re probably bullish on Bitcoin already. That’s great because I have good news for you. I believe that within our lifetime, Bitcoin will reach and exceed $1 million. This decade or the next.
That’s where patience comes in the picture.
However, until Bitcoin reaches such a valuation, you have only one goal. Get at least 1 Bitcoin, at any price, no matter what. Work your ass off, get it, and then protect it with your life.
If you’re already rich and have the size to retire, congratulations. Bitcoin is just one way to achieve that. The more classic approach is to build an equity / bond portfolio over time. The 4% rule applies just the same.
The reason I emphasize Bitcoin is because it is the most liquid asset in crypto. Less volatile, always in demand, and integrated across all of DeFi. You can’t go wrong with this choice. I do not recommend any altcoins for this.
How can you get that 4% yield on Bitcoin today?
The most straightforward way is to simply sell it one day, get $1,500,000 in cash, and put it in AAVE. It’s safe, easy, and the most secure way to generate that 4% in crypto. Actually, it’s more like 6% or $7,500 / month! You just got a raise in retirement. But!
You’d be crazy to sell your Bitcoin! Don’t do that because it will still go up in value over time even if you withdraw 4% per year!
That’s why you have the option to use your Bitcoin (or a part of it) to provide liquidity to different DeFi protocols. For example, on GMX, if you provide your BTC as liquidity for traders to trade with, you’d make around 27% APY based on this week’s activity. That comes from all the fees and liquidations.
That APY won’t be so high for long, but it will still hover around 10% on average. That’s 2x the withdrawal rate you actually need. This means you can risk only half or less of your Bitcoin on such platforms when the time comes to reach 4% yield. That’s much better than selling your Bitcoin!
Next, you can take your Bitcoin, add it as a collateral on AAVE, and borrow their GHO stablecoin at 4% interest. If you stake AAVE tokens on their platform your borrowing interest falls to 3%! That’s pretty low. What do you do next?
You take that GHO stablecoin, swap it for USDe, and farm 10% yield on Ethena. Congratulations, you’re making 7% yield on Bitcoin without selling any or doing anything! The yield on Ethena can go up to 20% or more when the market is heated. Nice eh? They update the APY weekly.
Alternatively, you can swap GHO for USDC and farm over 10% on Hyperliquid which is similar to GMX.
Another way to look at this is if you get an average APR of over 4% you need less size to retire! That $1,500,000 becomes $600,000 if you can get an average APR of 10%. This will allow you to still take home $5,000 per month. Ethena or Hyperliquid sounds attractive here.
In a decade from now you’ll have about a dozen if not hundreds of options to pick from. Few will be safe enough, but you will have plenty of low risk options to reach your 4%, or even more!
Risks
Anything over 5% will have higher risk. AAVE’s rate on USDC is the base rate, you won’t get anything better with a lower risk in crypto. Considering it is already over 4% on average per year, this is your incentive to get into DeFi if you’re still skeptical about it.
Once you hit 10% or more in yield, the risks increase, but the tradeoffs are worth it, especially since you do not sell your most precious asset - Bitcoin. Generally, do not expect yields to hold over 10% for too long. It’s either just a phase in the market or a protocol dropping incentives. These don’t last.
Ideally you do not put all your Bitcoin or cash in one DeFi protocol. You should diversify and aim for at least 4% or more per year. Balance between protocols based on your risk appetite. More risk, less size needed. Do not get greedy.
The best part? Bitcoin will continue to appreciate over time, so you’ll eventually need to take very low risks with a smaller and smaller portion of your BTC for very good returns only possible in crypto.
If you don’t have any Bitcoin, it’s time to start. The earlier, the better.
TLDR & Tips to Remember
You will be able to retire with Bitcoin within 10 to 20 years.
Do all you can to acquire at least 1 Bitcoin in the next few years.
Learn how to use DeFi and get comfortable with it.
When the time is right, put your Bitcoin to work.
Aim to farm 4% yield per year or more depending on your risk appetite.
Do not get greedy.
Live a stress-free life and enjoy touching grass with Bitcoin.
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All info is provided for educational purposes only and is not financial advice.
Thank you so much for opening my mind to this. Can I challenge you a little with couple questions?
1) If you are in control of your assets and are not selling, then why do you say that "risk increases" and "don't get greedy"?
2) You are not bullish on the Etherium ecosystem, why would you trust your capital in this fragile ecosystem?
How do you put BTC on AAVE? there is no opton for that